Identifying Financial Report Frauds

Abstract

Misreporting numbers in a companys financial statements is not negligible, as manipulations will not reflect a reliable disclosure. With financial manipulation becoming more and more regular, it is obvious that solving financial manipulation is an issue that needs to be addressed gently. It becomes a necessity to find techniques or mechanisms that can effectively identify the potential of financial report fraud, increase the credibility of the corporation and boost the confidence of investors. In this paper, we argue that the M-score and F-score as two reliable tools for predicting the possibilities of financial manipulations. In this essay, we will introduce the background and principles of these two mechanisms, then verify their reliability and effectiveness on sample Us-listed Chinese companies, which include those associated with financial report frauds in the past. In addition, we will lay out our discovery and full verifying procedure to help readers have a better understanding of our research and perspectives.